US Airways 2007 Annual Report Download - page 81

Table of Contents
US Airways Group, Inc.
Notes to Consolidated Financial Statements — (Continued)
The weighted average collar range of the fuel hedges outstanding as of December 31, 2007 are as follows:
Put Option Call Option
Heating oil ($/gallon) $ 2.05 $ 2.25
Estimated Crude Oil Equivalent ($/barrel) $ 72.04 $ 80.44
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS 133") requires that all derivatives be
marked to market (fair value) and recorded on the balance sheet. Derivatives that are not hedges must be adjusted to fair value through
income.
As of December 31, 2007 and 2006, US Airways had open fuel hedge positions in place, which do not currently qualify for hedge
accounting under SFAS 133. Accordingly, the derivative hedging instruments are recorded as an asset or liability on the balance sheets at
fair value and any changes in fair value are recorded as gains on fuel hedging instruments, net in operating expenses in the accompanying
consolidated statements of operations in the period of change. During 2007, 2006 and 2005, US Airways recognized a net gain of
$245 million, a net loss of $79 million and a net gain of $75 million, respectively, related to hedging activities. The fair value of US
Airways' financial derivative instruments at December 31, 2007 and 2006 was a net asset of approximately $121 million and a net
liability of $66 million, respectively. Since US Airways' financial derivative instruments are not traded on a market exchange, the fair
values are determined by the use of valuation models with assumptions about commodity prices based on those observed in the
underlying markets.
(m) Deferred Gains and Credits, Net
In connection with fresh-start reporting and purchase accounting, US Airways' aircraft operating leases were adjusted to fair value
and deferred credits of $190 million were established in the accompanying balance sheets representing the net present value of the
difference between the stated lease rates and the fair market rates. These deferred credits will be decreased on a straight-line basis as a
reduction in rent expense over the applicable lease periods. At December 31, 2007 and 2006, the unamortized balance of the deferred
credits was $110 million and $141 million, respectively.
Rents for operating leases were adjusted to fair market value when AWA emerged from bankruptcy in 1994. The net present value
of the difference between the stated lease rates and the fair market rates has been recorded as a deferred credit in the accompanying
consolidated balance sheets. The deferred credits will be decreased on a straight-line basis as a reduction in rent expense over the
applicable lease periods. At December 31, 2007 and 2006, the unamortized balance of the deferred credits was $24 million and
$30 million, respectively.
US Airways has deferred the gain related to certain Sabre Inc. ("Sabre") options exercised in 1999 and 2007. The gain will be
amortized over the contract period as a reduction to other operating expenses. At December 31, 2007 and 2006, the unamortized balance
of the deferred credit, was $34 million and $31 million, respectively. See Note 6(a) for more information related to the Sabre options.
(n) Revenue Recognition
Passenger revenue
Passenger revenue is recognized when transportation is provided. Ticket sales for transportation that has not yet been provided are
initially recorded as air traffic liability on the balance sheets. The air traffic liability represents tickets sold for future travel dates and
estimated future refunds and exchanges of tickets sold for past travel dates. The majority of tickets sold are nonrefundable. Tickets that
are sold but not flown on the travel date may be reused for another flight, up to a year from the date of sale, or refunded, if the ticket is
refundable, after taking into account any cancellation penalties or change fees. A small percentage of tickets, some of which are partially
used tickets, expire unused. Due to complex pricing structures, refund and exchange policies, and interline agreements with other airlines,
certain amounts are recognized in revenue using estimates regarding both the timing of the revenue
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